Monday, August 29, 2011

China's Tudou Holdings (TUDO) had a tough first week of as a U.S. public company.

The stock's American Depositary Receipts have slipped about 20% from lasty week's offering price of $29 -- and that's after the company discounted its shares by 58% to online video rival Youku (YOKU) just to get the deal done.

It's hard to believe that Tudou's fortunes have fallen so far in less than nine months. Last November, Tudou was arguably the top online video website in China (depending on what metric you used). In fact, it was ahead of Youku in terms of filing with the Securities and Exchange Commission to hold an initial public offering on Nasdaq. (It took Youku two more weeks to file.)

The IPO was delayed by problems arising from a messy divorce between Tudou CEO Gary Wang and his wife. The very ownership structure of Tudou was in question and, as a result, had to be sorted out before the IPO could proceed.

The company needed the cash from the IPO as its cash levels declined from $336 million at the end of December to $41 million at the end of March. They IPO raised about $180 million.

How long the cash will last is another question. Tudou will not likely be able to do a successful secondary -- unlike Youku, which now has more than $600 million in cash.

Tudou is too risky, even after rumors Monday that China's top online portal, Sina Corp.(SINA), has bought a big chunk of the company since the IPO. I still wouldn't touch it.

However, when Tudou's cash runs low in three or four months, you can expect other big Chinese names like Baidu (BIDU), Sina, Sohu (SOHU) or even Youku to buy the company, and you could play it with that outcome in mind.

At the time of publication, Jackson had a long position in YOKU, BIDU and SINA, although positions may change at any time.

China's Tudou Holdings (TUDO) had a tough first week of as a U.S. public company.

The stock's American Depositary Receipts have slipped about 20% from lasty week's offering price of $29 -- and that's after the company discounted its shares by 58% to online video rival Youku (YOKU) just to get the deal done.

It's hard to believe that Tudou's fortunes have fallen so far in less than nine months. Last November, Tudou was arguably the top online video website in China (depending on what metric you used). In fact, it was ahead of Youku in terms of filing with the Securities and Exchange Commission to hold an initial public offering on Nasdaq. (It took Youku two more weeks to file.)

The IPO was delayed by problems arising from a messy divorce between Tudou CEO Gary Wang and his wife. The very ownership structure of Tudou was in question and, as a result, had to be sorted out before the IPO could proceed.

The company needed the cash from the IPO as its cash levels declined from $336 million at the end of December to $41 million at the end of March. They IPO raised about $180 million.

How long the cash will last is another question. Tudou will not likely be able to do a successful secondary -- unlike Youku, which now has more than $600 million in cash.

Tudou is too risky, even after rumors Monday that China's top online portal, Sina Corp.(SINA), has bought a big chunk of the company since the IPO. I still wouldn't touch it.

However, when Tudou's cash runs low in three or four months, you can expect other big Chinese names like Baidu (BIDU), Sina, Sohu (SOHU) or even Youku to buy the company, and you could play it with that outcome in mind.

At the time of publication, Jackson had a long position in YOKU, BIDU and SINA, although positions may change at any time.

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